- [Narrator] It's not just you
your daily coffee ritual is getting more expensive.
If you walk into an American cafe right now
your average coffee drink is going to run you around $4.50.
Five years ago, it would have cost you just $3.85.
Nearly a 17% rise in prices.
That's compared to inflation, which has grown
around 10% during the same period.
That rise is driven by a myriad of economic forces
that help determine the cost of your morning cup.
And now experts say that due to a major crop loss in 2020
in a matter of months, prices could go up even more.
We'll explain.
The price of coffee is driven in part
by a complex global supply chain
which shapes a more than $460 billion market.
Most coffee beans are produced
in Brazil, Vietnam, and Columbia.
They're then loaded on ships like these
and then transported around the world.
This well-oiled system moves the beans
to importing countries like the US, where they're then sold
to coffee traders who sell them to roasteries.
The roasted coffee is then sold to distributors
such as grocery stores and cafes.
Max Copestake is a Coffee Futures Broker.
- The trade operates on paper-thin margin
it's extremely competitive business now.
Things like shipping costs are massive.
- [Narrator] During the pandemic,
the industry has faced a number of shipping disruptions.
A shipping container shortage in Southeast Asia
has driven up the price
of many commodities, including coffee.
- Everything is taking longer to get
from one place to the other,
containers are piling up in places where they shouldn't be.
- [Narrator] Jose Sette is the Executive Director of the ICO
a leading inter-governmental organization for coffee.
- It's not just Southeast Asia, all over the world
we have problems finding sufficient containers.
So that means that freight rates tend to rise
and increase the prices.
- [Narrator] Coffee exports are also affected by storms.
In Nicaragua and Honduras communities were devastated
by hurricanes last year.
- They caused a lot of damage to infrastructure,
washed out bridges, landslides that block roads.
- [Narrator] The destroyed roads block trade routes.
And this meant the supply being imported into countries
like the US was diminished.
The concern over a lack of supply help drive up the price
of coffee futures and experts say this could continue.
- As temperature increases
this affects the viability of growing coffee
especially Arabica coffee.
Robusta as its name indicates is robust, is strong
and is harder to be affected by climatic phenomenon.
It's very resistant.
But Arabica coffee is more delicate.
It grows within quite a narrow temperature range.
- [Narrator] Over the past year,
the world's largest coffee producer Brazil,
faced a drought that devastated crops.
The International Coffee Organization says that around 30%
of the country's Arabica crop may have been lost.
This year's coffee yields will also be lower
because Brazil is in an off-cycle harvest
which happens every other year.
- The off-cycle is small, and we know that anyway
but this year is extra small.
And this has got people really spooked
'cause all of a sudden everyone's like,
"Hang on.
We need this huge country
because we've become so reliant on you."
- [Narrator] Marex Spectron estimates
that the global coffee market
will produce millions fewer bags
than the previous crop year.
You can see these factors are pushing
up the price of coffee futures, but overall
the effects of the drought haven't yet been felt
in your local cafe or grocery store.
With weather becoming more extreme around the world
due to climate change experts say risk
to coffee production will continue.
- As temperatures increase,
you would expect to find that areas
that currently produce Arabica will become too hot.
And we have to think about ways to mitigate this,
whether by different farming techniques or whether
and this is a more difficult process, migrating production.
- [Narrator] And as volatile weather increasingly leads
to fluctuations in the supply of coffee,
demand tends to stay pretty steady.
This is because coffee is relatively inelastic,
meaning that even when the economy fluctuates,
people keep buying beans.
- It doesn't change much if prices go up or down.
Let me try and explain this in simple terms.
If prices double in your supermarket next week,
you are likely to change your habits to some extent.
You will maybe switch over to a cheaper brand.
You may not drink as much coffee outside the home
where it is more expensive.
- But it's unlikely you'll stop drinking coffee altogether.
When the pandemic took hold in March, 2020,
people were forced to stay home.
Demand for out of home coffee plunged,
but demand for in-home coffee rose
making up some of the difference in consumption.
And as the pandemic continued, another pressure
on coffee pricing was playing out in global currencies.
Coffee future prices are tied
to the US dollar and Brazilian real.
The dollar is a global safe haven
in times of economic trouble.
So during the pandemic coffee farmers were incentivized
to take advantage of the strong exchange rate
and sell off their beans.
The result less stored coffee will be available next harvest
when crop yields are expected to be unusually low,
this is causing an imbalance
between the lower supply of coffee
and the expected rise in demand.
And this is why experts say coffee prices
are currently lower than they should be.
They say that this expected rise in prices
will affect the entire supply chain.
And in six to nine months
it could drive up the price of your morning cup, even more.
(upbeat music)